Euro woes may taint Aer Lingus takeover

Euro zone citizens may be more wary of travelling outside the zone

If the Moody’s outlook is correct, Aer Lingus could be a drag rather than a boon for its suitor, IAG

If the Moody’s outlook is correct, Aer Lingus could be a drag rather than a boon for its suitor, IAG

 

The declining strength of the euro as the currency zone struggles to kickstart economic growth has been a boon for many companies in the bloc, particularly those that are focused on exports outside the area but rely on local raw materials and other inputs.

But it is by no means universally good news and, according to a Moody’s report on the winners and losers in the currency’s present weakness, airlines are prominent among those facing a more challenging time ahead.

That will come as a rude awakening to a sector that has recovered sharply from the downturn triggered by the financial crisis.

Moody’s argues that while there might be greater demand for flights to euro zone countries as travellers look to make their money stretch further, much of the benefit will accrue to airlines coming from north America, Asia and the UK.

A corollary of that is that euro zone citizens will be more wary of travelling outside the zone. Moody’s notes that the euro has weakened by 15 per cent against the dollar in the second half of last year and by a further 7 per cent so far in 2015.

And it sees little sign of any recovery in the medium term, until 2017.

That weakness also means airlines in the euro zone will not reap the full benefit of the fall in oil prices as fuel is priced in dollars. Moody’s acknowledges that the main airlines in Europe will have hedged their fuel costs – not least after the salutary experience of the spike in oil before last year – but notes that most hedging is for 18-24 months which will not be long enough to protect airlines from the impact of the forex differentials.

None of which is particularly positive for Aer Lingus. If the Moody’s outlook is correct, the airline could be a drag rather than a boon for its suitor, IAG. And if the British-based airline group should walk away, it will only exacerbate the challenges for Ireland’s “national strategic asset” in competing as a small individual player on highly competitive long-haul routes.

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